The rise in energy prices caused by the Iranian crisis is influencing the debate on energy policy in Europe. Greta Thunberg, once a passionate climate activist, is now focusing on other issues, and the same is true for European politicians. The political consensus is shifting, but the energy policies pursued over the years come at a cost.
The most striking example so far has been European Commission President Ursula von der Leyen’s about-face on nuclear power, as she stated:
“In 1990, one-third of Europe’s electricity came from nuclear power; today it is just under 15%. This reduction in the share of nuclear power was a choice; I believe it was a strategic mistake for Europe to turn its back on a reliable and affordable source of low-emission energy.”
When she was a member of the Bundestag, von der Leyen herself had voted in favor of Germany’s nuclear phase-out, a policy the German government refuses to abandon even today. It is not often that politicians admit they were wrong, so when they do, it should be welcomed.
ETS
The President of the European Commission, however, stubbornly clings to another key pillar of EU energy policy: the Emissions Trading System (ETS), a de facto climate tax regime. This system truly harms European industry, as the cost of the ETS alone is roughly double the total price of American natural gas. While ending large-scale experiments in energy policy will take a long time, suspending the ETS, as requested by countries such as Italy, Poland, and Slovakia, could provide relief to European industry today.
Following criticism from BASF, the world’s largest chemical company, the European Commission is even more on the defensive regarding the issue. According to von der Leyen, “without the ETS, we would now be consuming 100 billion cubic meters more gas, making us even more vulnerable, more dependent, and weaker. (…) So we need the ETS. But we must modernize it.”
First making gas very expensive and then rejoicing that gas consumption is lower than it would otherwise have been obviously makes no sense. Certainly, at some point, an alternative to fossil fuels might emerge, but we are very farfrom that.
Since suspending the ETS is the only short-term measure available to EU policymakers to alleviate the suffering of the European chemical industry—the backbone of all other industries—it should really only be a matter of time before even the Brussels bureaucrats—and a number of key EU member states—change their minds on this issue. At last week’s EU summit, ETS defenders managed to defend the system, for now. The European Commission has promised to present a proposal to boost the EU carbon market reserve and develop a €30 billion decarbonization fund. While the first measure is expected to lower the cost of the ETS, the second ultimately places an additional burden on taxpayers, who will now be asked to pay for “decarbonization projects” under a sort of “first-come, first-served” scheme focused on lower-income EU member states.
EU Control Over Taxation
Prior to the EU summit, in a clear attempt to divert attention from the ETS issue, the European Commission had suggested that, to reduce energy bills, EU member states should lower energy taxes.
Although this is clearly a good idea, it is none of the European Commission’s business, as it is really seizing every opportunity to gain greater control over national tax policy. Last summer, it put forward a proposal to increase “own resources”—direct levies to finance the EU budget in addition to national contributions.
This is strongly contested by several EU member states. In response, Swedish Finance Minister Elisabeth Svantesson called the proposal “completely unacceptable,” further complaining that the Commission considers not only levies on tobacco products but also those on tobacco alternatives to be “own resources.” She lamented: “It appears that the European Commission’s proposal would result in a very substantial tax increase on white snus, and furthermore, the Commission wants the tax revenue to go to the EU and not to Sweden.”
This is truly problematic. Sweden is the only EU member state with an exemption from the EU ban on snus, an alternative to smoking tobacco. After three decades, it is possible to evaluate the Swedish alternative approach. Not only does the country have one of the lowest smoking rates in Europe, but it also has a much lower incidence of smoking-related diseases.
Separately, through the revision of the Tobacco Excise Duty Directive, the EU Commission is pushing for higher minimum excise duties on traditional tobacco products. Complaints that this would fuel the illegal tobacco trade and harm consumers’ purchasing power, especially in poorer EU member states, are being ignored. In a parliamentary question, Swedish MEP Jessica Polfjärd warned that this EU legislative change should not “interfere with the successful Swedish model,” emphasizing that Sweden’s exemption should continue to apply to “white snus” —nicotine pouches—which have established themselves as an alternative product and contain no tobacco at all.
At least in January, the Cypriot presidency of the Council of the EU presented a new draft compromise on the issue that represents an improvement, as it slightly mitigates the increase in certain areas and also grants a transition period. This is yet another sign that EU member states are the more reasonable party in this matter, even though the approach of treating non-harmful or less harmful products the same as harmful ones has survived, for now. Cyprus is supported by several EU member states, which fear that too sharp an increase risks fueling illicit trade, eroding tax revenue, and overwhelming national law enforcement authorities.
Price caps in the EU
Not content with gaining greater control over fiscal policy, the European Commission is also exploiting the energy crisis to promote price controls. In response to current concerns about energy prices, von der Leyen suggested “exploring the possibility of subsidizing or capping gas prices.” This is unlikely to solve the core of the problem: the energy shortage. It is also questionable that this comes from an institution that has made great efforts to phase out fossil fuel production in the EU, making Europe artificially dependent on external suppliers, such as Russia and Qatar, whose gas export capacity has been severely damaged due to the war in Iran. Not long ago, more gas was produced in the EU than in Russia.
Certainly, if one wanted to phase out fossil fuels, one would start by phasing out imports, not domestic production, especially considering that environmental regulations for fossil fuel exploration tend to be stricter in Europe than in the rest of the world.
It is not only the European Commission that deserves blame for Europe’s energy dependence. EU member states also bear a great deal of responsibility. The Netherlands, for example, decided to completely phase out domestic gas exploration based on shaky scientific assumptions. The Dutch government even decided to fill with concrete the gas wells in Groningen, the nerve center of Dutch gas exploration, to make it much harder for future governments to reverse this policy.
As gas prices have skyrocketed, views on the matter are shifting. David Smeulders, a professor of energy technology at Eindhoven University of Technology, stated that it would be “very sensible” to keep Groningen open as a strategic reserve, explaining: “We no longer extract natural gas to make money, but for an emergency stockpile it would be useful for some wells to remain open. We didn’t promise the people of Groningen that we would seal the wells.”
Following the Dutch policy decision, in 2024 Romania surpassed the Netherlands for the first time as the largest gas producer in the European Union. With the start of offshore production at Neptun Deep in 2027, domestic production is expected to double. It is unlikely that the ongoing unrest in the Middle East will change this stance.
Despite Brexit, the United Kingdom continues to largely align with EU energy policy. There, too, a debate has erupted over the wisdom of Energy Minister Ed Miliband’s decision to ban all new oil and gas exploration in the North Sea, especially since Norway simply continues to fully exploit its own resources in nearby waters.
Javier Blas, Bloomberg’s chief energy analyst, also urges: “We need to extract more oil and gas from the North Sea,” arguing:
“It’s better to extract it here than to import it from abroad. Regulations are stricter here; it will be better for the environment, create jobs, economic growth, and tax revenue. This doesn’t necessarily mean we’re abandoning the green transition. But it does mean we need to balance it with our economy and consider how we can grow it and keep our industry competitive.”
An Evolving Debate
Last but not least, there is the opportunity for the UK—and other European countries—to tap into shale gas. Although this type of exploration is banned in Europe, European countries are still happy to import the rather expensive U.S. shale gas—which the United States now uses as a political lever as well. T
